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<br />B-217826 <br /> <br />To recover the costs allocated to irrigation and M&I water <br />supply, the Bureau has entered into 298 contracts with water <br />users. Federal investments for M&I water bear interest, while <br />those for irrigation water are repaid interest-free. If <br />irrigators are unable to repay their share of costs, commercial <br />power customers make up the difference. Of the S1.229 billion <br />allocated to irrigation water service, the Bureau has estimated <br />that $113 million will be beyond the irrigators' ability to pay. <br />This cost is to be repaid by commercial power customers. <br /> <br />As of September 30, 1984, irrigation and M&I water customers <br />had repaid $75.4 million of the $1.378 billion of CVP facilities <br />that were placed in service through 1983. Since 1982, irrigation <br />revenues have been insufficient to cover annual operating expenses <br />incurred by the federal government. Since the 1940's, M&I <br />revenues have been insufficient to cover annual interest repayment <br />requirements levied by the federal government. This situation is <br />caused by fixed water service rates contained in long-term <br />contracts negotiated between the Bureau and its customers. The <br />majority of these contracts expire between 1995 and 2010. <br /> <br />Because repayment would not be accomplished under existing <br />contracts, in April 1984 the Bureau started the formal process to <br />establish rate-setting policies for the project. These policies <br />are aimed at recovering, within 50 years, that portion of the <br />existing plant in service allocated to irrigation and M&I water. <br /> <br />THE CENTRAL UTAH PROJECT <br /> <br />Based on the Bureau's interpretation of reclamation law and <br />congressional actions, Bureau policy requires a firm repayment <br />contract with an entity prior to construction of M&I project <br />facilities which benefit that entity. Once a repayment contract <br />has been executed, construction expenditures may not exceed the <br />contractual repayment obligation. Beginning in the late 1970's, <br />the Bureau recognized that the repayment contract with the Central <br />Utah Water Conservancy District would not recover all of the then <br />estimated Bonneville Unit costs allocated to municipal and <br />industrial water supply. In 1980, the Bureau negotiated a <br />supplemental repayment contract with the district to increase its <br />M&I repayment obligation. Interior rejected this contract because <br />it was legally questionable, contained several provisions which <br />were not fiscally prudent, and did not adequately disclose the <br />cost of the project to those responsible for repayment. <br /> <br />:1 <br />II <br />:1 <br /> <br />1 <br /> <br />In order to continue construction without a new contract, the <br />Bureau took two actions. First, in 1981, the Bureau invoked the <br />Water Supply Act of 1958, deferring to the future repayment of <br />costs associated with a portion of the M&I water to be delivered <br />by the Bonneville Unit. This deferral enabled the Bureau to <br />continue construction because the district's repayment obligation <br /> <br />3 <br />